[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]



 
   CUTTING OUR TRADE DEFICIT: CAN THE U.S. MUSTER ITS DIVERSE TRADE 
                PROMOTION OPERATIONS TO MAKE AN IMPACT?
======================================================================

                                HEARING

                               before the

                      COMMITTEE ON SMALL BUSINESS
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                     WASHINGTON, DC, APRIL 26, 2006

                               __________

                           Serial No. 109-48

                               __________

         Printed for the use of the Committee on Small Business


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 house

                                 ______

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                      COMMITTEE ON SMALL BUSINESS

                 DONALD A. MANZULLO, Illinois, Chairman

ROSCOE BARTLETT, Maryland, Vice      NYDIA VELAZQUEZ, New York
Chairman                             JUANITA MILLENDER-McDONALD,
SUE KELLY, New York                    California
STEVE CHABOT, Ohio                   TOM UDALL, New Mexico
SAM GRAVES, Missouri                 DANIEL LIPINSKI, Illinois
TODD AKIN, Missouri                  ENI FALEOMAVAEGA, American Samoa
BILL SHUSTER, Pennsylvania           DONNA CHRISTENSEN, Virgin Islands
MARILYN MUSGRAVE, Colorado           DANNY DAVIS, Illinois
JEB BRADLEY, New Hampshire           ED CASE, Hawaii
STEVE KING, Iowa                     MADELEINE BORDALLO, Guam
THADDEUS McCOTTER, Michigan          RAUL GRIJALVA, Arizona
RIC KELLER, Florida                  MICHAEL MICHAUD, Maine
TED POE, Texas                       LINDA SANCHEZ, California
MICHAEL SODREL, Indiana              JOHN BARROW, Georgia
JEFF FORTENBERRY, Nebraska           MELISSA BEAN, Illinois
MICHAEL FITZPATRICK, Pennsylvania    GWEN MOORE, Wisconsin
LYNN WESTMORELAND, Georgia
LOUIE GOHMERT, Texas

                  J. Matthew Szymanski, Chief of Staff

          Phil Eskeland, Deputy Chief of Staff/Policy Director

                  Michael Day, Minority Staff Director

                                  (ii)


                            C O N T E N T S

                              ----------                              

                               Witnesses

                                                                   Page
Mica, The Honorable John L. (FL-7), Congressman, U.S. House of 
  Representatives................................................     3
Lavin, The Honorable Franklin L., Undersecretary for 
  International Trade, International Trade Administration........     6
Yager, Dr. Loren, Ph.D., Director, Internationl Affairs and 
  Trade, U.S. Government Accountability Office...................     8
Hill, Ms. Kathy M., President, The State International 
  Development Organizations......................................     9
Holmes, Ambassador J. Anthony, President, American Foreign 
  Service Association............................................    11
Morrison, Dr. James, Ph.D., President, Small Business Exporters 
  Association....................................................    13
Scott, Mr. Robert E., Director of International Programs, 
  Economic Policy Institute......................................    15

                                Appendix

Opening statements:
    Manzullo, Hon. Donald A......................................    26
    Velazquez, Hon. Nydia........................................    32
Prepared statements:
    Mica, The Honorable John L. (FL-7), Congressman, U.S. House 
      of Representatives.........................................    34
    Lavin, The Honorable Franklin L., Undersecretary for 
      International Trade, International Trade Administration....    37
    Yager, Dr. Loren, Ph.D., Director, International Affairs and 
      Trade, U.S. Government Accountability Office...............    42
    Hill, Ms. Kathy M., President, The State International 
      Development Organizations..................................    63
    Holmes, Ambassador J. Anthony, President, American Foreign 
      Service Association........................................    70
    Morrison, Dr. James, Ph.D., President, Small Business 
      Exporters Association......................................    74
Additional Material:
    Mendelowitz, Mr. Allan I., Ph.D., Member of the Board of 
      Directors, Federal Housing Finance Board...................    82

                                 (iii)


   CUTTING OUR TRADE DEFICIT: CAN THE U.S. MUSTER ITS DIVERSE TRADE 
                 PROMOTIONOPERATIONS TO MAKE AN IMPACT?

                              ----------                              


                       WEDNESDAY, APRIL 26, 2006

                   House of Representatives
                                Committee on Small Business
                                                     Washington, DC
    The Committee met, pursuant to call, at 2:00 p.m., in Room 
2360, Rayburn House Office Building, Hon. Donald Manzullo 
[Chairman of the Committee] presiding.
    Present: Representatives Manzullo, Kelly, Akin, Velazquez, 
Udall, Bordallo, Sanchez, Barrow.
    Chairman Manzullo. Good afternoon. I am pleased to open 
this hearing on the important topic of trade promotion and the 
extent to which the diverse U.S. programs can be coordinated to 
enhance small business exports which offer a key tool to help 
reduce our trade deficit.
    I welcome our six witnesses who bring real practical 
experiences to addressing the question of how we can do a 
better job at trade promotion. I guess the first thing I should 
do is learn how to do a count. Seven witnesses.
    With the U.S. trade deficit in goods and services running 
approximately 65 billion or more per month so far in 2006, the 
U.S. is well on its way to break the 2005 record annual trade 
deficit of $724 billion. So far this year until the end of 
February, the accumulated U.S. trade deficit with China, just 
China alone, is somewhat worse, totaling $31.75 billion up to 
$.63 billion from the same period last year.
    Equally threatening is the U.S. dependence on the inflow of 
foreign capital to finance these deficits for the purpose of 
federal debt instruments which, in turn, lends support for a 
strong dollar that continues its deficit to debt cycle.
    Congress and the Export Enhancement Act of 1992 established 
the Trade Promotion Coordinating Committee, TPCC, with two main 
purposes: one, providing a unified framework to coordinate the 
export promotion and export financing activities of the U.S. 
government; and, two, developing a government-wide strategic 
plan for carrying out federal export promotion and export 
financing programs.
    Two of the key duties assigned to the TPCC were assess the 
appropriate levels and allocation of resources among agencies 
in support of export promotion and export financing and provide 
recommendation to the President; and to coordinate official 
trade promotion efforts to insure better delivery of services 
to U.S. businesses.
    Over the past 14 years, TPCC has had mixed results in 
fulfilling its congressional mandates. Without clear budgetary 
influence or a strong will to exert oversight authority of the 
numerous federal entities that make up its members currently 
totaling 21, the TPCC's impact that unified the diverse U.S. 
trade promotion and finance operations has been negligible. Our 
trading partners are well organized and effectively market 
their small businesses in the expanding global markets, 
particularly in China. With small businesses offering the best 
prospect to boost export growth, we need to redouble our 
efforts to help them achieve this goal.
    It is time the U.S. put some order into its federal trade 
promotion and finance operations through strengthening the 
TPCC. We do this by elevating the TPCC to an Executive Office 
of the President level operation, by providing it with 
budgetary input authority over federal trade promotion and 
finance operations, by staffing TPCC directly or through 
detailed assignments to effectively perform oversight of the 
U.S. trade operations, and lengthen the national export 
strategy with verifiable performance benchmarks to the annual 
federal budget submission.
    I now yield for an opening statement from the Ranking 
Minority Member, Representative Velazquez of New York.
    [Chairman Manzullo's opening statement may be found in the 
appendix.]
    Ms. Velazquez. Thank you, Mr. Chairman.
    Small business international trade prospects are on the 
rise. This represent 97 percent of all exporters, and are 
experiencing growth at two times the rate of their larger 
counterparts. They generate 30 percent of the nation's total 
value of exports and dominate many of these industries.
    The tremendous growth of the global market has allowed 
American small businesses to remain competitive and strong. Yet 
since 2002, the nation's trade deficit has been rising to 
unprecedented levels with no end in sight. It is time to 
acknowledge that current economic policies are undermining the 
leadership position of our nation's industries in the global 
market.
    Therefore, as we consider a new national promotion 
strategy, it is crucial to focus on trade policies that target 
those businesses with the ability to export successfully and 
accommodate this dynamic global economy.
    In my opinion, the answer to our trade deficit is through 
small businesses. However, our nation's commitment to trade 
promotion is declining, as indicated by several factors, all of 
which impede the growth of our country's small exporters.
    The Trade Promotion Coordinating Committee is vastly under 
funded. The administration has provided fewer resources to its 
19 member agency for which to contribute to the export 
promotion objectives. Since FY 1999, the Committee's budget has 
been cut by over 30 percent. Today member agencies are 
contributing a mere $1.8 million to trade promotion goals.
    This lack of adequate funding has left the committee 
without the necessary resources and staffing it needs as well 
as leverage over agencies to utilize their budget resources to 
fulfill its mandate. The small business program has not been 
coordinated successfully within the TPCC, and many exporters 
claim the process to gain information and resources to 
facilitate trade transactions is unwieldy and confusing.
    Finally, as advisors to the U.S. Trade Representative, the 
TPCC has not adequately represented the needs of small business 
in trade agreement negotiations. In 2002, the General 
Accounting Office investigation corroborated these findings and 
confirmed that the Committee has exhibited effective and 
inconsistent policies for coordinating federal agency export 
promotion efforts in supporting small business exporters.
    Given the dynamics of the global economy and the importance 
of international trade, this is simply unacceptable. As the 
trade deficit continues to rise, one question remains: why 
would we choose to ignore these small businesses who are our 
strategic asset for spurring innovation and increasing our 
global market share?
    The global economy only continues to grow with each passing 
year. Yet trade deficits are growing, and our national 
industries are losing their competitive edge. It is more 
important now than ever for our nation's small businesses to 
remain on the cutting edge of their industries.
    Instead of ignoring the tremendous potential of small 
exporters, the TPCC needs to focus on recommitting and 
supporting the growth of these entrepreneurs well into the 
future. In order to insure that our nation's small business 
exporters are able to compete more efficiently and effectively 
in the global market, it is critical to invest adequate 
resources into making this happen.
    Our trade policies must be reflective of the important role 
these entrepreneurs play in the world economy. It is my hope to 
find a solution that truly supports their continued innovation 
and advancement.
    I look forward to hearing the testimony of today's 
witnesses.
    Thank you, Mr. Chairman.
    [Ranking Member Velazquez's opening statement may be found 
in the appendix.]
    Chairman Manzullo. Thank you.
    We are sorry that we are late, but we had to vote. We had 
some members of the Indonesian parliament that had stopped by 
to visit, and unfortunately, they had to leave. So we are sorry 
that happened.
    The order will be starting with Congressman Mica, and then 
Secretary Lavin. There is a clock up there. When you see the 
yellow, that means you have a minute, and then when you see the 
red, that means that time has expired, and it is set for five 
minutes. So if you could keep your remarks to that, we would 
appreciate it.
    Congressman Mica.

STATEMENT OF THE HONORABLE JOHN MICA (FL-7), CONGRESSMAN, U.S. 
                    HOUSE OF REPRESENTATIVES

    Mr. Mica. Well, thank you, Mr. Chairman, and thank members 
of the Committee for conducting this important hearing.
    Right now I guess on everyone's agenda is gas prices and 
energy concerns. Within Congress, everyone is concerned about 
the deficit we are running. Personally, I think the greatest 
challenge we face is our trade deficit. I circulated this 
little chart. It shows a $724 billion trade deficit.
    I would like to ask at this time. I have a long statement 
that I would like included and maybe these charts in the 
record.
    Chairman Manzullo. The statements of all the witnesses will 
be admitted without objection.
    Mr. Mica. Great. This is the challenge we really face for 
the future. Just from some personal history, I was involved in 
international trade. I was a chief of staff for one of the 
Senators and accidentally got involved in an international 
trade issue, right after I left turned it into a little 
consulting business, represented many American businesses, some 
large corporations and small companies overseas, in addition to 
being a developer in the communications business.
    So I have seen some of how this operates at first hand over 
the years. Let me say that as a business person, having been 
involved in international trade that the United States 
assistance programs and trade development and promotion, 
anything that we have to do with promoting trade and business, 
both nationally and internationally, is dysfunctional at very 
best.
    This chart, which has been revised slightly, some of you 
spoke to the 19 agencies that are involved in international 
trade. Most of this chart has not changed. We still have all of 
these agencies involved in some way, but in a very 
dysfunctional fashion.
    And I remember when we tried to change some of the 
responsibilities of the Trade Promotion Coordinating Committee. 
We made some moderate changes, but basically one of the 
problems you have with this is this committee is basically a 
toothless tiger. They do come up with a report, and I read 
through their report this morning just to see what it has. It 
is basically a compilation of a few things that are going on. 
It has no strategic business plan or plan to promote U.S. 
business in a coordinated fashion between all the agencies of 
the United States, and part of its problem is it has no teeth.
    I commend Chairman Manzullo for drafting legislation which 
he as introduced and I am pleased to be a co-sponsor to, to at 
least try to give some status to this important objective.
    So basically, the United States as business is business has 
no business plan. That is our first problem. We have no 
coordination of these 19 agencies with any teeth to do 
anything, and you will hear probably a lot of the witnesses 
will tell you what a great job they are doing.
    If this is a great job, folks, you know, and we are in 
trouble.
    So the first thing you need is some teeth to the tiger and 
somebody in charge and a business plan that really has a plan 
of action.
    The Department of Commerce that we have, which is our 
biggest agency, and I have this chart. I always like to pull 
this chart out. This shows the number of people in the 
Department of Commerce. What are there, 30,000 in the 
Department of Commerce? There are really only several thousand 
that are involved in business and international trade.
    The International Trade Administration has four percent of 
the employees. Most of them are in NOAA, the National Oceanic 
and Atmospheric Administration, Bureau of Census. That makes up 
65 percent of them, and then some other agencies put in here.
    So we have a Department of Commerce which is also 
farcically named and operated as far as promoting business.
    Now, they are charged with foreign commercial service, and 
the foreign commercial service is probably one of the greatest 
stepchildren in government. It is not only a stepchild because 
it mostly is located under the State Department within an 
embassy in foreign locations. So it is a stepchild from both 
its placement under a diplomatic agency, and it is also an 
abused and neglected and now it is going to be a starved 
agency.
    First of all, most foreign countries do not have a foreign 
commercial service office. So first to conduct and promote and 
assist U.S. business overseas, the majority of countries do not 
have them. Most of the countries where we have them probably 
don't need them, and then the balance, some 99 in some 99 
countries or over 90 countries, most of the commercial service 
is handled by the State Department.
    And if you think that the people that are involved, 
economic officers, in the State Department are interested in 
conducting business, in these 90-some markets that don't have 
foreign commercial service operators, I submit this statement 
from the State Department in a letter to me.
    ``Many economic officers are entry level officers who in 
their first one or two years in the foreign serve filled 
rotational or consular positions.''
    So what they are doing is sending people with probably no 
experience to be there for a short time to conduct one of our 
most important strategic responsibilities, a business of this 
country.
    Chairman Manzullo. Your time.
    Mr. Mica. Okay, and I am just about finished. These guys 
yielded me a minute anyway.
    Chairman Manzullo. Set a bad precedent here.
    Mr. Mica. So, again, if you look at where we have 
operations, we have them where we do not need them. We do not 
have them where we need them.
    I put in some examples. I managed to get one foreign 
commercial service officer in the Slovak Republic, and I have 
the results of that one person over three or four years, which 
is incredible, and the Baltics, which is one of the best 
markets in the world, I think we just lost the person there 
because our policy now, and it is not these guys' fault; it is 
partly Congress' fault, the agencies', committees' of Congress 
fault. You only have a little piece of this for small business, 
but I commend you for taking this on and focusing attention on 
this.
    So I hope in my running over the items that I have 
submitted that I show a little bit of the picture out there and 
I would be glad to answer questions.
    [Congressman Mica's testimony may be found in the 
appendix.]
    Chairman Manzullo. Congressman, I appreciate your passion 
in the area.
    Our next witness is Franklin Lavin. Secretary Lavin is the 
Under Secretary for International Trade, the International 
Trade Administration, a very impressive background, including 
the fact the he speaks Chinese; is the former U.S. Ambassador 
to Singapore. So he brings a tremendous amount of experience to 
this position, and we look forward to your testimony.

  STATEMENT OF THE HONORABLE FRANKLIN L. LAVIN, INTERNATIONAL 
                      TRADE ADMINISTRATION

    Mr. Lavin. Thank you, Mr. Chairman, Ranking Member, other 
members, and thank you, Congressman Mica, for your comments, 
much of which I agree with.
    But I am very glad to be here today to talk about the Trade 
Promotion Coordinating Committee and how the federal government 
can best help U.S. small and medium sized companies export.
    And I want to begin by first expressing my gratitude toward 
you, Mr. Chairman, and the Committee for your leadership on 
this issue.
    I think in the first instance, I should begin by noting 
that the U.S. economy is performing very well. We've got a pro 
growth economic agenda. Businesses are growing. Last year alone 
we saw two million jobs created, economic growth of three and a 
half percent, wrapping up 11 quarters of GDP growth, this 
despite the challenges of hurricane and high energy costs, and 
our indicators so far this year tell us that '06 is going to be 
a very strong year as well.
    But of particular relevance to the discussion today, it's 
exporters that are an important engine of this growth. One in 
five are manufacturing jobs that depend on exports, and jobs 
linked to exports pay some 13 to 18 percent more than other 
U.S. jobs.
    Our merchandise exports last year grew about 11 percent and 
13 percent in 2004. Agricultural exports hit a record high in 
2005 and support some one million jobs. Service exports have 
doubled in about a decade.
    So we began, I think, with some good news, but despite this 
good news, I think we asked ourselves could U.S. businesses, 
particularly the small and medium size businesses be doing even 
better in a growing global economy because what we have seen in 
the last decade is a dramatic reduction in trade barriers and a 
range of improvements in technology that have made it easier 
for businesses to compete, but we have a significant segment of 
the U.S. business community that does not export or does not 
compete internationally.
    Part of this challenge is the attractiveness of our home 
market. We have the largest domestic market in the world, and a 
good number of our companies are still building out their 
domestic activity.
    But we view our primary challenge as one of encouraging 
these small and medium size companies to take advantage of 
improved operating environment, improved access to foreign 
markets, and improved opportunities and growing economy.
    So both at the Commerce Department itself and through the 
TPCC, our overriding priority is simply reaching out to this 
wider community of U.S. exporters and potential exporters. In 
my view there is a substantial untapped community of U.S. 
companies who are capable of exporting but not yet in that 
business.
    So given the large number of U.S. companies, we have 
something like 5.7 million companies in the United States. 
Given reasonable smallness of our staff, despite the fact that 
I think we have a very strong staff, what we are trying to do 
is develop partnerships with key private sector organizations 
to help us carry out this mission.
    We have been working a lot over the last six months with 
the express delivery companies, the international ones. The Web 
based marketplace is the international banks, all of whom have 
an orientation the same way we do and the TPCC does. How do we 
help these small companies become competitive overseas?
    And I will wrap up, if I may, Mr. Chairman, with one 
example. We started talking with Federal Express in 2004, and 
in the last six or 12 months we think that relationship with 
FedEx has grown quite substantially. They simply have a 
marketing program and communication channel, a customer 
database, and the resources far in excess that we have in the 
Commerce Department. They have an ability to work with their 
customer base and help their customer base move into different 
markets.
    So they have communication channels. They have resources. 
We think we have technical know-how, and we can marry up.
    So, for example, FedEx can identify all of their customers 
that current export to Mexico, and when the Central America 
Free Trade Agreement comes on line and El Salvador is 
implemented, we can explain to all Federal Express customers in 
Mexico in a commercial basis Mexico just got bigger. El 
Salvador is just as easy as Mexico. Why don't we take all FedEx 
customers who currently export to Mexico and help them now 
export to E. Salvador, migrate to a new market?
    And they've got a mechanism, a system and program in place 
to do just the kind of activity. You can see how that can work 
across the board.
    Yes, we are talking with UPS. We will talk with DHL. We 
will talk with all of the carriers. We will talk with the U.S. 
banks, and we have had some very interesting initial 
discussions with eBay as well.
    The role of technology in helping exporters has just 
shifted so dramatically over the last ten years that our 
ability to be successful overseas in large part, in my view, is 
going to depend on our ability to get these force multipliers, 
get these U.S. companies engaged in our mission and work with 
them to help carry that message and help U.S. companies get 
overseas.
    We have moved the TPCC to directly interface with 
Commercial Service, and I think that is the right move. It is 
essentially to my mind the group that needs to focus on sales, 
marketing, customer contact, if you will. So I'm very 
comfortable with that new focus.
    And let me close, Mr. Chairman, by saying that in my view 
in the era we're in, the TPCC is now even more vital in 
reaching America's small business, and this effort to improve 
our communication channel and improve our contact beyond the 
normal government channels is going to be key to the success, 
and I look forward to working with you and the Committee in 
that effort.
    Thank you very much.
    [The Honorable Franklin L. Lavin's testimony may be found 
in the appendix.]
    Mr. Akin. Very interesting testimony. We appreciate that.
    Our next witness is Loren Yager. Dr. Yager is the Director 
of International Affairs and Trade, currently serving on the 
U.S. Government Accountability Office, where he is responsible 
for international trade related issues.
     Dr. Yager, we look forward to your testimony.

STATEMENT OF LOREN YAGER, Ph.D., U.S. GOVERNMENT ACCOUNTABILITY 
                             OFFICE

    Dr. Yager. Thank you, Mr. Chairman.
    Mr. Chairman and members of the Committee, thank you for 
the opportunity to appear before the Small Business Committee 
on our work on the Trade Promotion Coordinating Committee. Mr. 
Lavin has provided quite a bit of background on the TPCC in his 
statement, and I know that this Committee is also very familiar 
with many details of that Committee.
    I do want to emphasize that GAO has consistently been asked 
by the Congress to perform oversight on the trade promotion 
activities in the federal government, and those requests began 
even before the creation of the TPCC in 1992.
    We have recently updated this work at your request, Mr. 
Chairman. However, I will draw on this larger body of work in 
my remarks as I believe that the consistency of our findings 
over time provides a useful context for today's discussion.
    Today, as requested, I will do three things: first, report 
on the trends and the budget authorities of the member 
agencies; second, discuss the Committee's efforts to improve 
coordination; and, third, update our findings regarding the 
Committee's role in defining goals and aligning resources.
    In terms of the TPCC budget, as reported in the national 
export strategies, overall trade promotion resources dropped by 
about one-third in the last few years, primarily as a result of 
budget decreases at two of the four key agencies. Funding for 
three Department of Agriculture programs dropped in Fiscal 
Years 2005 to 2006, and ExIm Bank lowered its projected costs 
for providing financing.
    At the same time, budget authority for the two other key 
agencies, Departments of Commerce and State, have remained 
relatively steady. However, the effects of these trends on the 
agency's trade promotion activities is not always clear.
    For example, the decline in ExIm Bank's budget authority 
did not reduce its ability to provide export financing. On the 
other hand, Commerce Department officials emphasize that while 
their budget is not changed, recent increases in the cost of 
security for overseas offices included in the department's 
trade promotion budget authority diminished the resources 
available for trade promotion activities.
    On my second point, our review of agency coordination shows 
the Committee has achieved some important progress, 
particularly when compared to the situation that existed in the 
early 1990s prior to the TPCC. At that time, there was little 
awareness or cooperation among agencies of the other's 
activities, and there was a great deal of inefficiency and 
overlap.
    In the last few years, the TPCC built on some earlier 
efforts and pursued a number of initiatives to improve agency 
coordination of trade promotion activities. For example, since 
2002, TPCC completed and implemented a number of changes as a 
result of its private sector outreach efforts, including joint 
training and other activities that leverage resources of TPCC 
agencies.
    However, some interagency coordination challenges persist, 
particularly among the Departments of Commerce, State and 
Agriculture regarding plans to realign overseas staff.
    Third, on my point, the TPCC has not been as successful in 
defining goals and aligning resources. For example, the 
strategies do not identify or measure progress towards member 
agency goals in relation to the strategy's broad federal trade 
promotion priorities, and the agencies have not articulated 
measurable goals in support of these priorities.
    The lack of systematic information also makes it difficult 
to assess progress or trends in small and medium size 
businesses' participation in trade promotion activities.
    While TPCC agencies track small business participation in a 
variety of ways, we observe that the national export strategies 
provide only anecdotal information on these businesses' 
participation in trade promotion activities.
    Moreover, the annual strategies do not review agencies' 
allocation of resources in relation to the broad priorities, 
and the TPCC has little influence over agencies' allocation of 
resources to support their goals or its priorities. Agency 
representatives told us as they had during our 2002 review that 
they would resist any effort by the TPCC to review their 
budgets.
    Mr. Chairman, based on our long record of oversight over 
the TPCC, we believe that the TPCC can continue to make 
improvements in interagency coordination and do a better job of 
tracking small and medium size businesses' participation in a 
consistent manner.
    However, we question whether the TPCC in its current 
structure can achieve the fundamental objectives associated 
with defining goals and aligning resources.
    We also question whether the TPCC's current move into the 
Office of the Assistant Secretary for Trade Promotion within 
the Commerce Department will help it achieve those goals.
    As we noted in previous reviews in the TPCC, sustained high 
level involvement is necessary for the TPCC to achieve its 
fundamental objectives. It is not clear that the current move 
would facilitate this kind of involvement.
    Mr. Chairman, this concludes my statement. I will be happy 
to address any questions that you have.
    [Dr. Yager's testimony may be found in the appendix.]
    Mr. Akin. Doctor, thank you for bringing it in on time 
here.
    And our next witness is Kathy Hill, and if you would 
proceed, and you know the drill on the clock there. Thank you.

STATEMENT OF KATHY M. HILL, THE STATE INTERNATIONAL DEVELOPMENT 
                          ORGANIZATION

    Ms. Hill. Thank you. It is a pleasure to appear before this 
Committee.
    My name is Kathy Hill, and I am the Director for Trade for 
the State of Iowa, the Department of Economic Development. But 
here today I am in the capacity of the President of the State 
International Development Organization, or SIDO.
    We are the only international association of state 
international trade directors, and as state trade 
professionals, we work every day with the small businesses and 
help them find or expand their global markets.
    We are very thankful that you reached out to us, and it is 
an honor for us to be here.
    There are three things that I would like to bring up today. 
First, intergovernmental cooperation is essential to address 
our trade deficit. We have to work smarter. We have to work 
harder, and we have to facilitate the needs of our companies 
with an integrated approach.
    Second, recent decisions made by the U.S. Department of 
Commerce have set back the progress made in promoting 
intergovernmental cooperation over the past few years.
    And, thirdly, we believe that the best way to insure that 
all involved in trade are on the same page, and this is through 
strengthening the role in the White House coordination of 
federal programs.
    You may not know, but state programs of the 50 states, we 
are involved in trade promotion. We have a staff of about 1,000 
here in the United States if you put us all together. We have a 
budget of over $75 million, and we have over 200 overseas 
offices. We provide unique services and complementary services 
to our federal counterparts, including export promotion grants 
that cover a lot of the program fees that are charged by 
federal programs.
    And with that then we have our own unique ability to help 
the small businesses export through trade missions and trade 
shows, and then we go ahead and we contract with the Department 
of Commerce and use their services, again, supplementing 
Commerce's budget costs.
    When we faced our budget cuts in 2001, we had to depend 
more on Commerce and the USEACs. But now that there is talk 
about raising the fees for service for gold and platinum key 
services, we are going to have to reevaluate how we are going 
to have to use the services of the federal government.
    Connecticut has changed their program totally to rely on 
commerce. Florida is probably Commerce's largest user, their 
largest customer. As states, we provide Commerce about 
$800,000, and that is not counting in-kind services or it is 
not counting the services that we provide with housing that we 
are doing joint offices.
    So we need to work together to strengthen the business 
community and to globalize the business community, and the 
federal government needs to coordinate the services offered to 
the business communities.
    We have a program, and a federal program. It is called MAP 
funds, market access program. Iowa companies this year or 
federal year 2004, they access $800,000 of MAP money. This is a 
program through the U.S. Department of Agriculture. They 
leverage $2.5 million. We have got $800,000. This is a fabulous 
program, to help companies market internationally.
    There is no program like this for manufacturers and service 
companies. Instead, we are seeing more of defragmentation, and 
we are seeing budget cuts for those kind of companies when we 
are looking at a trillion dollar trade deficit. So, again, the 
work that is being done here today is an extremely important 
thing.
    I would also like to mention the White House 
Intergovernmental Committee. Recently at our meetings we met 
with the White House Committee, and we have excellent 
assistance from them. We were able to sit down with Commerce, 
with the USTR's Office as the State International Development 
Organization, discuss what issues that we have, how we can work 
together and coordinate more closely, and we appreciate that 
type of oversight, and we think that by doing more coordination 
and coordinating the federal programs could only enhance 
globalization because it is not going away. So how do we work 
harder? How do we work smarter?
    Thank you.
    [Ms. Hill's testimony may be found in the appendix.]
    Mr. Akin. Thank you very much for sharing your testimony.
    Our next witness is the Honorable Anthony Holmes, President 
of American Foreign Service Association; is that correct?
    Mr. Holmes. Correct.
    Mr. Akin. Proceed, please.

STATEMENT OF THE HONORABLE J. ANTHONY HOLMES, AMERICAN FOREIGN 
                      SERVICE ASSOCIATION

    Mr. Holmes. Thank you.
    Mr. Chairman, members of the Committee, on behalf of more 
than 27,000 active duty and retired members of the United 
States Foreign Service, I would like to thank you for the 
invitation to speak before this panel today on a subject of 
great relevance to the U.S. Foreign Service.
    AFSA is here because we believe there needs to be a more 
ambitious U.S. government vision of commercial diplomacy 
overseas. More than 15 years ago, a Bill of Rights for U.S. 
Business was promulgated, and our ambassadors abroad were given 
detailed advocacy guidelines to promote a trade liberalization 
agenda to facilitate the work of our export credit and project 
finance agencies and to provide market intelligence and 
business contacts to America's small and medium sized 
enterprises.
    The creation of the TPCC in 1992, the Trade Advocacy Center 
at the Commerce Department in 1994, and the roll-out of U.S. 
Export Assistance Centers throughout the 1990s were additional 
elements of the U.S. government's growing realization that 
supporting U.S. business overseas was and remains a genuine 
strategic priority.
    Fifteen years after this seachange in thinking, the SME 
business person is fully aware of the global forces competing 
with him or her in his or her own market. He or she sees that 
evidence every day as more and more international companies are 
becoming dependent on their ability to reach U.S. consumers.
    But how do American SMEs penetrate foreign markets? What 
data are available? Who are the key contacts? Are there any 
special market barriers? Is financing available?
    These are some of the questions asked by SMEs who are ready 
and able to join the global economy if they can find the help 
they need just to get started.
    As the President of AFSA, I am asking today for the 
administration and the Congress to work together to raise the 
priority of commercial diplomacy in an era of increasing global 
competition and increasing budget stringency. As my written 
testimony explains, we believe that a more unified, 
authoritative TPCC would be both desirable and logical to 
achieve this end, and only if it is not merely an exercise in 
moving boxes around on an organizational chart.
    A stronger TPCC must be part of a more comprehensive trade 
agenda, an agenda as ambitious as that encompassed by the 
Uruguay Round of the GATT negotiations.
    Mr. Chairman, I am asking for two things today. First, the 
TPCC needs to be reinvigorated. Coordination among the 19 TPCC 
agencies must be improved, with clear delineation of TPCC 
functions at our missions overseas, and with an acknowledged 
TPCC coordinator linked to a unified decision making process in 
Washington.
    The prerogatives of individual agencies can be preserved, 
but when consensus breaks down, there needs to be a default 
decision making process in Washington capable of quickly 
resolving the dispute.
    Further, as the head of TPCC, the Secretary of Commerce 
should be given additional executive authority beyond that 
provided for in the original 1992 legislation. He must have 
sufficient authority to move the bureaucracy on matters of 
trade.
    A recent analogy would be the creation of the post of the 
Director of National Intelligence. There may be rational 
explanations for the dispersed nature of our government's 
economic and commercial functions, but the problems this 
creates for effective trade promotion are not dissimilar to the 
recent problems faced by consumers of the U.S. government's 
intelligence community.
    Secondly, Mr. Chairman, I ask that Congress provide the 
resources necessary to attract and retain the most qualified 
people for careers in the Foreign Service promoting trade. The 
professional career service is the foundation for an effective 
global competitiveness policy. It may not be cheap to achieve, 
but the value to our national interest is immense.
    The simple fact is that an appropriately funded trade 
promotion apparatus would grant our SMEs sustainable access to 
new markets overseas. As President Bush remarked the other day, 
trade is one of the most powerful engines of growth and job 
creation. Americans account for about five percent of the 
world's population, and that means 95 percent of our potential 
customers live overseas.
    In conclusion, Mr. Chairman, I commend you and the members 
of your Committee on the leadership you are showing in this 
vital area. Thank you again for the opportunity to participate 
in today's hearing, and I would be delighted to answer any 
questions you may have.
    [Ambassador Holmes' testimony may be found in the 
appendix.]
    Mr. Akin. Thank you for sharing your testimony.
    I think we are going to jump to the questions after 
everybody has had a chance.
    Our next witness is Dr. James Morrison, President, Small 
Business Exporters Association of the United States.
    Welcome, James.

 STATEMENT OF JAMES MORRISON, Ph.D., SMALL BUSINESS EXPORTERS 
                          ASSOCIATION

    Dr. Morrison. Thank you, Mr. Chairman, Representative 
Velazquez, and members of the Committee. Thank you for inviting 
me to appear here today.
    I am James Morrison, President of the Small Business 
Exporters Association of the United States.
    SBEA is the oldest and largest nonprofit association 
exclusively representing small and mid-size U.S. companies that 
export.
    Today's hearing focuses on the crucial issue of how our 
country can best response to a trade deficit approaching one 
trillion dollars a year. What should we do?
    First of all, the U.S. can and should uphold our own trade 
laws and hold other nations to the international commitments 
they have made to join the WTO and to take part in other trade 
agreements.
    Our country should not, however, try to handle the trade 
deficit by limiting imports through political fiat. Not only 
would this likely violate the same kinds of international trade 
agreements that we are trying to get other nations to honor, 
but according to almost every reputable economist, it would 
lower the U.S. standard of living.
    Nor should we seek refuge in manipulating the exchange rate 
of the dollar, not when we criticize other nations for similar 
actions and not when that, too, would lower our standard of 
living and could even push us into a recession.
    What can we do? It is an old saying, but it is often true, 
that the best defense is a good offense. Effective export 
promotion in a government where at least 19 agencies play a 
role in international trade is quite a challenge. As SBEA notes 
in its written testimony, there is a thread running through the 
difficulties that several international trade agencies, ExIm, 
SBA, and TPCC, among others, are encountering in their export 
promotion efforts.
     It is this: responsibility to carry out the job is not 
being matched by authority to do so. H.R. 5196, which was 
introduced this morning, seeks to address this problem at both 
SBA and TPCC.
    At SBA, the bill would elevate the agency's international 
trade operation to appoint just below the administrator. This 
is a very valuable and long overdue change.
    SBA is fundamentally by statute and culture a domestic 
agency. If Congress wants the agency to play a constructive 
role in export promotion, and I think it is fair to say that 
Congress does, then SBA needs a strong signal to treat that as 
a priority. The position on an organizational chart means 
something, and people in an organization know what it means.
    SBA would also urge Congress to clarify the role of SBA's 
Office of International Trade in the development and 
improvement of the agency's products and services for 
exporters. OIT can suggest now. It cannot initiate, and it 
cannot veto.
    Congress should also take a hard look at OIT's resources. 
The office now has 15 export finance specialists and U.S. 
export assistance centers around the country. It once had 20. 
Yet this tiny group of people has underwritten billions of 
dollars in exports over the past few years. Just the jobs 
created and the taxes paid on these export sales cover the 
costs of the USEAC specialists many times over. Yet this 
spectacularly successful program, which ought to be expanded 
into more USEACs, is constantly threatened with extinction.
    Overall, OIT has about 25 employees. That works out to one 
per 10,000 small business exporters and one per one million 
small businesses overall, and this is despite the fact that 
small companies represent the greatest up side potential for 
U.S. export sales and are the companies that typically need the 
most assistance in getting into exporting and then obtaining 
export financing.
     The problem that TPCC faces is similar in certain 
respects. Creating TPCC created an expectation for 
coordination, but that explicit or implied responsibility was 
not well matched with TPCC's actual authority. For one thing, 
TPCC is well down the organization chart of the Department of 
Commerce, one of the major agencies that TPCC is expected to 
coordinate.
    For another, its ability to influence the activities of 
other agencies when Congress seems to want TPCC to exercise it 
through the budgetary process is limited by TPCC's inability to 
intervene in that process in a timely way.
    H.R. 5196 also seeks to address these problems, first, by 
elevating TPCC to a position within the White House and, 
second, by allowing it to intervene earlier in the budget 
setting process.
    While these are constructive changes, and SBEA supports the 
overall thrust of them, we also think it is important to ask 
TPCC with keeping the agencies focused on government-wide trade 
promotion goals. Coordination, after all, should be seen as a 
means, not an end.
    As an example of such a goal and one that would 
particularly benefit SMEs in international trade, we suggest 
lowering export transaction costs. In our written testimony, we 
go into some detail about how different agencies could help 
achieve this goal by attacking high fixed costs of exporting.
    But suffice it to say in a situation where only an export 
sale above one million dollars can be profitable, few companies 
will export. If the threshold falls to $500,000, more companies 
will export. At a profitability point of $250,000 or even 
$100,000, many more companies will export, and all U.S. 
exporters benefit because costs fall for everyone, and so 
everyone can benefit from more competitive prices.
    When the fixed costs of trading with Mexico and Canada fell 
after NAFTA, the number of USSMEs exporting to Canada doubled. 
Those exporting to Mexico nearly tripled. The values of those--
    Mr. Akin. Dr. Morrison, you are pretty much out of time 
here. Can you summarize things here, please?
    Dr. Morrison. Yes. I have only got two sentences left here.
    Mr. Akin. All right.
    Dr. Morrison. Export promotion gets much easier as red tape 
and fixed costs decline.
    That concludes our remarks, and I would be happy to accept 
questions.
    [Dr. Morrison's testimony may be found in the appendix.]
    Mr. Akin. Thank you.
    And our last witness is Robert Scott, Senior International 
Economist and Director of International Programs.
    Roberts, proceed.

    STATEMENT OF ROBERT E. SCOTT, ECONOMIC POLICY INSTITUTE

    Mr. Scott. Thank you, Mr. Chairman and Representative 
Velazquez and other members of the Committee.
    U.S. export performance has declined for more than two 
decades. U.S. export promotion strategies are flawed and 
ineffective because they are built on a faulty understanding of 
the causes of our weak export growth. Small and large 
businesses in the United States are confronted by a number of 
fundamental barriers to expanding exports.
    First of all and most important is the sustained over 
valuation of the dollar since 1995. That has been aided and 
abetted by a passive and noninterventionist response from 
responsible officials at the White House and in Treasury.
    There are also, as you know, persistent tariff and non-
tariff barriers to U.S. exports that are still major problems 
today. You have highly unbalanced trade flows with countries 
like China that are continuing to be a huge barrier to exports.
    We also have high and rapidly growing benefit costs for 
U.S. workers for things such as health care.
    Finally, we have low levels of R&D support which can 
provide the seed corn for increased competitiveness.
    Our export promotion plans and activities as set forth in 
the TPCC's national export strategy report for 2005 failed to 
directly address these problems. If you do not outline the 
problem, you cannot design solutions that are going to redress 
it.
    The NES has a three-pronged strategy for 2005: promoting 
new trade agreements; identifying promising market 
opportunities in China; and increasing trade leads type 
programs in other countries that are identified there.
    The Clinton and Bush administrations have frequently 
reported they negotiated hundreds of trade agreements over the 
last decade. Likewise, the NES proclaims that 12 FTAs have been 
negotiated and more are under negotiation, and that this will 
improve export performance.
    Such assertions assume that simply approving these 
agreements is going to improve export performance. A review of 
the history laid out in some of the charts I prepared for you 
today shows that nothing could be further from the truth.
    In Figure 1, I show that U.S. export performance has 
declined steadily in every decade since the 1970s, despite the 
hundreds of trade agreements that we have negotiated.
    U.S. imports have always, in every decade, grown faster 
than exports, and as a result our trade deficit has soared, as 
we all know and as is shown in Figure 2.
    Over valuation of the dollar is a key problem because it 
increases the cost of U.S. exports and reduces the price of 
imports here in this country. The trade deficit is increased 
from two percent of GDP in 1995, about $110 billion, to seven 
percent of GDP in the fourth quarter 2000, which is actually 
over $900 billion. That is in the broadest measure of the 
current account.
    In the mid-1980s, the last time we had a seriously over 
valued dollar and a large trade deficit, the Reagan 
administration negotiated a coordinated international campaign 
to bring down the dollar's value. Secretary James Baker met 
with his counterparts in the G5 and negotiated the Plaza 
Accord. In two years the dollar came down by 25 percent, and 
the current account deficit shrank to a manageable one percent 
of GDP as shown in my Figure 3.
    China's particular problem, imports are six times as large 
as exports. A large reason for this is because China is 
intervening in foreign exchange markets buying massive 
quantities of dollars and depressing its currency.
    The NES strategy touts the rapid growth of exports to China 
in 2004. However, imports to China increased to 29 percent, 
much faster than the 22 percent increase in exports. So our 
trade deficit with China increased 31 percent in that one year 
alone. The same pattern prevailed in 2005.
    U.S. exports are also harmed by low levels of spending on 
research and development. As I document in my testimony, I have 
shown in the last chart we have had stable funding for R&D 
here, but compared to other countries, we are now ranked about 
15th in the world, and that just will not do it.
    I see my time is running out. I will conclude with some 
policy suggestions. Treasury needs to find that China is guilty 
of currency intervention and begin negotiations to end that 
practice. We need to work with other members of the G8 now to 
come out with a plan for reducing the dollar by probably 30 to 
40 percent. We need big increases in non-defense R&D spending 
and policies to reduce barriers such as high health care costs 
that are particularly damaging for U.S. firms.
    We need to expand enforcement of trade remedy and perhaps 
establish an independent agency to do that. These measures 
will--I see I am out of time--reduce export barriers, and I 
think they will provide the best way to stimulate exports for 
large and small businesses, which I think will be the best way 
to reduce the trade deficit.
    Thank you, Mr. Chairman and members of the Committee.
    [Mr. Scott's testimony may be found in the appendix.]
    Mr. Akin. Thank you, Mr. Scott.
    And thank you all. You have got a marathon hearing going. 
Usually we do tiers of witnesses, and our Chairman is an 
aggressive, go-getter kind of guy. He has lined up seven people 
all at one time. So we are proud of you all for visiting us and 
for helping us out with your comments.
    I am going to turn to the Ranking Lady, Ms. Velazquez, for 
the first question.
    Ms. Velazquez. Thank you. Thank you, Mr. Chairman.
    Mr. Lavin, as Ms. Hill from the State International 
Development Organization indicated in her written testimony, 
increases in fees by the Department of Commerce for the Gold 
Key program, which helps small businesses find foreign buyers, 
will out price many small businesses, do you think that the 
Department of Commerce request for reduced funding for trade 
promotion programs, such as the Gold Key Program, is consistent 
with national export promotional objectives?
    Since you tried before and exporters and state development 
officials were opposed to those fees and Commerce said that 
they will not go for those fees, but this year they reappear 
again.
    Mr. Lavin. Thank you, Congresswoman, for your question, and 
thanks to Kathy Hill also for raising this point.
    I think I agree very much with her sentiment that there is 
an argument for some kind of a fee structure in what we offer, 
but I think we want to be very careful not to price the fees in 
such a way that it his prohibitive, that we push people away 
from us, and we have to be very mindful that small businesses 
are going to be less capable of paying those fees.
    So I would favor a kind of fee structure that is modest, 
that requires that the business we are working with has a 
commitment, has a buy into the program, but it is modest enough 
that it does not push away the small businesses we are trying 
to reach.
    And I would advise anybody in the U.S. government to keep 
in mind that as they encourage government agencies to move 
towards cost recovery, they are, in effect, discriminating 
against smaller businesses.
    Ms. Velazquez. Mr. Lavin, but Commerce promised that or 
guaranteed that those fees would not reappear, and yet they are 
here again.
    Mr. Morrison or Ms. Hill, would you like to comment on the 
impact of those fees?
    Ms. Hill. I think one thing and the point that I was trying 
to make is that I do not know if Commerce or possibly this 
Committee has an understanding of how much the states subsidize 
those fees, to begin with, and we are not going to increase our 
subsidies.
    So if Commerce wants to raise their rates, that is 
something we cannot stop. We do not agree with it. We will 
advocate against it. We will continue to advocate against it as 
SIDO, but the small and medium size company cannot afford to 
pay those fees.
    I think that if a company goes to Commerce and asks for 
help and is willing to pay three to $500 a day for a gold key 
service, that they are committed. Otherwise they wouldn't be 
paying that fee. They wouldn't be traveling to that country.
    So I think the argument of commitment may not totally 
stand, but at the same time, I do believe that I understand 
that you cannot keep the same fees for the next 20 years. that 
is quite understandable, but at the same time, we have to stay 
competitive.
    Dr. Morrison. I would agree with what Ms. Hill just said. I 
think when you are talking about gold key fees of couple 
hundred bucks a day or seven or 800 bucks a day, that becomes 
something that is feasible for an SME. What Commerce is really 
contemplating is quadrupling or quintupling those fees to 
thousands of dollars a day. That makes it much harder for a 
small business to do a back-of-the-envelope in which they can 
afford to go to the country, pay these fees, and not have a 
sale come out of it. So it is pushing companies away. It is not 
a good idea.
    I devoted a lot of my written testimony to the idea of 
lowering transaction costs. This is a way of raising 
transaction costs. If you do that, you will have fewer 
businesses.
    Ms. Velazquez. Thank you, Mr. Morrison.
    Mr. Scott, from an economist's perspective, what are the 
returns on public investment in research and development and 
training programs designed to increase U.S. business 
competitiveness in global markets?
    Mr. Scott. Well, there is a long record in economic 
research showing that public investments in R&D and in training 
pay a much higher return than is perceived by the private 
business. The reason is that there are externalities. There are 
benefits that accrues to the country as a whole that the 
private firm cannot perceive.
    So private firms tend to under invest in research and in 
training. So those are responsibilities that naturally fall on 
the federal and state and local governments, and yet we, I 
think, are under investing in those key areas, and that is one 
reason we are falling behind in terms of exports and 
competitiveness.
    Thank you.
    Ms. Velazquez. Thank you.
    Ambassador Holmes, in your written testimony you mention 
funding reductions and fee increased in the FY 2007 budget 
impacting the services administered by the U.S. and foreign 
commercial service. In what specific ways do you think the cuts 
will impact small U.S. exporters, and what impact will this 
have on our overall export promotion strategy?
    Mr. Holmes. Thank you.
    I think that the previous answers have addressed this 
question as well. It is inevitable that our commercial service 
will have fewer clients because the increased fees act as a 
major deterrent to small and medium size enterprises, even 
venturing into the international market.
    I think the trend in U.S. government support to all 
business, including small and medium size enterprises, is going 
precisely 180 degrees in the wrong direction. We should be 
expanding U.S. government budget support for export promotion 
agencies and increasing the size of our footprint overseas, and 
instead of reducing the foreign commercial service presence 
overseas, we should be expanding it.
    Mr. Mica. Could I comment? I am going to leave, and I did 
not get to respond to those questions, but I just want to echo 
what has been said here.
    The first part of this discussion is kind of ludicrous 
because we do not even have the service in most of the places 
where we need it, and now we are slashing because of some of 
the cost recovery things for security and other items. We are 
slashing the numbers that we even have.
    So instead of adding more locations where we are promoting 
business, we are cutting back. We are charging those that least 
likely afford it. If you are a medium or small business, where 
do we need to be doing business the most? Let's just take a cut 
at it. Where is our biggest trade deficit? China.
    It is almost a joke. I think we have 18 people total in 
China, full time U.S. equivalents. We have very few offices. I 
was in Chengdu. They have no one there. You need people who can 
speak the language, who can deal with these people. We are 
facing China, Inc., where if you do not know the difference 
between business, government and finance, and they play us like 
a Stradivarius, and we have no one to help small U.S. business 
or medium to even get there.
    We should be paying them to go a bonus and sponsoring a 
trade missions and opening rather than charging them. So we are 
pushing more people out of the market. We are exporting less, 
and we are getting whipped.
    I am sorry I have to go, but I could not resist making 
those comments.
    Mr. Akin. Before you go, I would like to give you a chance 
at least at one question here because I get my shot at it as at 
least the acting Chair, you know, because my question was to 
you somewhat, Congressman.
    When I take a look at this coming from a business 
background, I mean, I have seen some ridiculous looking 
organization charts before, but this has got to be the most 
confused mess I have ever seen almost.
    My question--
    Mr. Mica. We got them together in 1992, and I was involved 
a bit in that, but again, it has no teeth. Nobody is in charge. 
It is sort of reporting.
    The bill we have is an improvement. It does give us some 
status.
    Mr. Akin. I was just going to ask: politically is this 
thing so difficult that you have got so many committees 
involved they can never get fixture?
    Mr. Mica. That is the problem. In the 1990s, when our side 
took over in 1995, I got a trade sort of office started, a 
bill, and we got it pretty far in the House. We could not do it 
in the Senate, and then it died, and that is when we 
reorganized the committees to, I think, about 18 and it was a 
little bit easier at that time because no on had jurisdiction.
    Now everybody has got their turf. No one wants to give up 
anything. So it is very difficult, but we need a business plan, 
and we need to be competing in these markets. And there is 
great opportunities. They love U.S. products, but our guys, 
and, Ms. Velazquez, I think you said 92 percent of the business 
is small business; but they cannot compete.
    Where they need the language, the finance, and finance is a 
key, too, I just talked to someone who got turned down from 
ExIm because he could not get a loan because there is 
instability in this market overseas.
    Well, what in the hell do we need financing for U.S. 
assistance if it is not for those places?
    Mr. Akin. That are unstable.
    Mr. Mica. Yes. So you need finance assistance. You need 
promotion assistance, language assistance, assistance in those 
markets, and certainly in most of the emerging market. Look at 
the list of where we do not even have an office. You have got 
the State Department in charge of commercial operations for 
which they put their lowest priority personnel who are on a 
rotational basis. That is what they have told me.
    So we do not have it together, and we are getting creamed.
    Thank you.
    Mr. Akin. Thank you for your optimistic statement there.
    [Laughter.]
    Mr. Akin. I have all sorts of mischievous questions. I have 
got a couple more minutes to do a few. Here is one for Mr. 
Scott.
    Is it true that just because you know all of our labor 
unions run our cost of labor so high that we just cannot be 
competitive overseas?
    Actually that is a softball question.
    Mr. Scott. Thank you, Mr. Chairman.
    Actually, our unit labor costs are very competitive, 
particularly, for example, against countries in Europe and 
Japan. They have much higher unit labor costs, and yet we have 
large trade deficits with those countries as well.
    So there is clearly something wrong with this picture that 
I think we need to address again. Currency is one major issue, 
but other things I talked about as well.
    Thank you.
    Mr. Akin. You cannot blame it on that. I remember one of 
the examples that was given to me was the Danish. Their labor 
costs are higher than ours, and yet they are building all of 
the ships and we are not. You know, you cannot blame it on, I 
mean, just an excuse. There are some reasons we have to work 
together.
    Let me just throw out one more kind of crazy question. What 
would happen if a bunch of us radical Republican 
conservatives--I know this sounds like Doomsday--but say we 
were to actually do what some people have been talking about 
and just get rid of the IRS and go to a national sales tax. Of 
course, a national sales tax would mean anything that we 
manufacture in this country would have no tax on it when it is 
exported. Anything coming into this country would be taxed at 
the rate of the national sales tax when it came in.
    What do you think that would do to the situation?
    [Pause in proceedings.]
    Mr. Akin. Now that I have everybody jumping for that 
question, you can think about it.
    Here is your last question, and I would like you, because I 
do not have enough time to get a complete answer to this, but 
if you could write this down. If you had one recommendation of 
what we should be doing to correct this, if you could just do 
one thing, what would it be?
    I will let you go ahead. I have got just a few more.
    Mr. Holmes. I will repeat to you, Congressman, my mantra: 
resources, resources, resources. We cannot be a super power on 
a shoestring. We cannot do this job by exacting such a cost as 
we have heard described on the SMEs themselves. The U.S. 
government has to step up.
    I realize this is not the Appropriations Committee, but you 
cannot do what we have articulated, enshrined as our national 
objectives with a declining budget for promotion this way. We 
have to step up. It I realize is painful in the short term, but 
in the long term it will not be.
    Dr. Yager. If I can also add to that, I think that 
certainly resources are important, but I think one of the 
things that we have emphasized and we have observed it now for 
many years in doing the work on the TPCC, and that is follow 
through. Right now the strategies identify a number of 
different priorities every year, and some of those priorities 
do repeat from one year to the next.
    For example, China has been in the booklet for some time, 
but I think what we are looking for is some systematic follow-
up to make sure that the priorities that were identified in 
previous years are getting additional attention so that you can 
look at that book in the following year and say, ``How did we 
do in terms of the priorities of last year? Did we achieve 
those goals? To what extent do we need to put those in the book 
again to see whether we can do even better?''
    So I would say resources, but our focus has been on follow-
through and making sure that you set goals and then you follow 
through with them both at the agency level and again with 
oversight from committees like this one.
    Ms. Hill. I would agree. I would say coordination and then 
elimination. Coordinate your agencies and eliminate 
duplication, and that way at the state level we have had to go 
through this after 9/11, especially when our budget were cut, 
and we can help and SIDO would be more than happy to work on 
any committee that there might be to talk about this, but 
coordination and elimination.
    Mr. Akin. Unfortunately, in my brief six years here, I 
realize that sometimes that is a little harder to do with the 
Congress than we certainly wish it were.
    I am a little out of time, and I want to recognize another 
fine member of the Committee, Congressman John Barrow has been 
waiting and he has got--no? You are okay for questions?
    Okay. Then, Ms. Sanchez, did you want to?
    Okay. Then, Ms. Bordallo, would you want to ask a question? 
I have got one. I am just about to try to get some good 
information out of these witnesses, but I wanted to defer to 
you. Are you okay?
    Okay. Then let's go ahead then. If you had just one thing 
you were going to do, let's go with you, James, and then 
Robert.
    Dr. Morrison. I would do a better job, as I indicated in 
the testimony of aligning responsibility with authority. If you 
give these people responsibility to do something and you give 
them no authority to actually execute, it just becomes somebody 
else's secondary consideration. That is a problem throughout 
the trade promotion area.
    Mr. Akin. I put that all in the same category as the 
organizational chart is just a mess. You basically have to 
clarify who is doing what and make sure you hold them 
accountable and proceed that way.
    Okay. Yes, Robert.
    Mr. Scott. Well, surprisingly, I think I will back away 
from the currency issue. The dollar will fall one way or 
another. It will be a hard landing or a soft landing. I think 
there is universal agreement amongst the IMF and central 
bankers around the world. This has to happen as Herb Stallings 
says. Something cannot keep going on forever. It will not.
    So can we do? I want to go back to an earlier question 
about a sales tax. In my view, I would like to see us institute 
a value added or sales type tax to pay for health care, to take 
that burden off the backs of U.S. businesses, and then we could 
rebate that tax at the border.
    That is what the Europeans do. They do not pay for health 
care on their exports to us. When we sell products in Europe, 
not only do we pay for our health care expenses for U.S. 
businesses. We pay for theirs as well when the value added tax 
is imposed. So I think it is an interesting way to level the 
playing field.
    Mr. Akin. You are going to cause me some heart stress here 
when you say ``value added.'' I was thinking of a straight 
sales tax and not a value added, but that is a form of sales 
tax. It is a legitimate answer. Yes, okay.
    Anybody else?
    Mr. Lavin. Mr. Chairman, for my part, we have something 
like 5.7 million businesses in the United States. Only about 
220,000 of those export. A rough guess would be there is 
probably several hundred thousand companies that are export 
capable that could arguably compete internationally.
    So the one thing we need to do is find a way to talk to, 
reach, and work with that pool of several hundred thousand 
companies which are not in the export business, but could 
conceivably be. So if you say what change could we make or do, 
I would say rather than focus on internal talking to other 
government agencies, which I am all for, we really need to find 
a way to talk to those 300,000, 500,000 companies out there 
that could conceivably be successful exporters.
    Mr. Akin. So maybe what you do is you just take a lot of 
these government employees, commission them as sales people, 
tell them to give them a percent of what we can do in terms of 
international sales, and turn them loose on American 
businesses.
    Mr. Lavin. Yes.
    Mr. Akin. I am the government. I am here to help you sell 
product.
    Mr. Lavin. We could do it. We have kind of already got that 
in the private sector, and they are all of the international 
enablers. The international banks will only get paid when that 
letter of credit is issued or the currency exchange takes place 
or the express company that only gets paid when the shipment 
takes place. So there is a whole range as far as multipliers 
out there whose livelihood is entirely dependent on getting 
those numbers to grow. So I think our challenge is how do we 
harness that private sector desire for success and focus it so 
that we're helping these SMEs get into those markets.
    Mr. Akin. I guess I have got one final question, and I am 
going to call it on the hearing unless somebody else wants to. 
Did you want to do another round?
    Okay. Why don't you go ahead then and I will go with the 
last question. Ms. Bordallo.
    Ms. Bordallo. Thank you, Mr. Chairman. I apologize for 
being late, but there are a number of things going on at one 
time.
    I think this is for Frankly Lavin; is that correct? Yes, 
Mr. Lavin.
    Do you believe that the yearly meetings among the TPCC 
agency leaders are adequate to design and coordinate and 
evaluate trade promotion policy for all of the 19 member 
agencies?
    Mr. Lavin. Congresswoman, we have reasonably regular 
meetings of the entire TPCC. I think I have had two within sort 
of six or seven months of assuming my office. So it is a little 
hard for me to say only have been in it about six months how 
many in the course of a year.
    But more important than the entire group of 19 getting 
together, it is the daily discussions with USTR, with 
Agriculture, with ExIm, with the other constituent members that 
I think help the process along. Most issues that come up, 
Congressmen, do not involve all 19 members as a whole. It 
usually involves two agencies. So there is an issue or problem, 
and we just have a phone call or a quick meeting to say can we 
solve this.
    It is useful to get all 19 together somewhat regularly to 
have sort of strategy discussions, and the one we had a few 
months ago was looking at DR-CAFTA is DR-CAFTA is moving to 
implementation. What kind of programs and message do we want to 
make sure we do so that we are aligned, so that we are giving 
the right message, so that we are helping our businesses into 
these new markets?
    And I think that is a good example where you do want to get 
all 19 lined up, but in day-to-day activity, it is typically 
two agencies, maybe three agencies that need to fit together.
    Ms. Bordallo. I understand. Mr. Lavin, would you say then 
of the 19 agencies you would have an annual meeting? Is that 
what you are saying here, and then with the others it is more 
or less on a daily basis?
    Mr. Lavin. It is certainly more than annual, ma'am, because 
I have already had one, and I think we have got another one set 
for May. So it is going to be two in about seven months.
    Well, I do not know over the course of the year if it will 
be three, four, or five, but we will meet together every 90 
days or so, 60 days in a large group setting. I mean, this week 
alone I have had several discussions with USTR. I have had 
several discussions with NSC reps. I got together with ExIm 
leadership in the course of the WHO visit. I have had a number 
of State Department chats.
    I mean, it is part of the bread and butter of everyday 
life.
    Ms. Bordallo. Well, I think the communication is important.
    Mr. Lavin. Absolutely.
    Ms. Bordallo. Dr. Yager, given the fact that economic 
conditions are highly dynamic in the increasingly globalized 
economy and the country's export strategy must, therefore, be 
updated continuously, do you believe there is a need for 
greater congressional oversight over the development of export 
promotion objectives?
    Dr. Yager. Well, certainly we have been involved now as I 
have mentioned in my statement. We have been involved as a 
result of congressional questions now for about 15 years. We 
have done, I think, about six studies on the issue of trade 
promotion and looking at the Trade Promotion Coordinating 
Committee, as well as some of the individual agencies and what 
they do.
    So certainly we think that that oversight has a very 
important role, and we believe, of course, that even with a 
change if this group should be moved to the White House or 
anyplace else, we still would believe that congressional 
oversight is a very important part of this process.
    I think as Mr. Lavin has said, there are always going to be 
changes. Maybe technology deserves a very special focus. Maybe 
there are certain kinds of questions that can be asked and 
certain catalysts for change can be created by the Congress in 
terms of getting more effective functioning out of a Committee 
like this one.
    So we certainly would be very strongly in support of 
continued oversight.
    Ms. Bordallo. I think the question was a greater oversight.
    Dr. Yager. Well, from our standpoint, we have been almost 
continuously involved in this. So, again, it may be from 
different committees, but we would be in favor of--
    Ms. Bordallo. So you would not object to.
    Dr. Yager. Would not, would not object to that. That is 
correct.
    Ms. Bordallo. Thank you.
    Thank you, Mr. Chairman.
    Mr. Akin. Thank you.
    Just one last question, just a common sense kind of thing. 
Just the poor old average American out there in the street who 
does not get into this international trade stuff very much, if 
we do not deal with this issue, how is it going to affect the 
average guy on the street here? What is the bottom line in one 
sentence?
    Say it gets twice as bad as it is now. Let's say the 
balance of trade gets more out of line. What is the practical 
ramification?
    Mr. Scott. Thank you, Mr. Chairman.
    I have done many studies of job loss associated and job 
displacement associated with trade deficit, and there are 
certainly millions of workers that have been affected. I think 
the hidden part of the iceberg is really the wage effect, and 
the large the trade deficit grows and the more we come into 
unfair competition with workers around the world, we are going 
to see more and more workers' wages depressed.
     It has been estimated that up to 50 million workers will 
be affected by offshoring of services. So I think this is the 
hidden danger of the trade problem. If we do not attack this 
and do not improve our performance--
    Mr. Akin. I just need really short answers.
    Mr. Scott. Thank you.
    Mr. Akin. So the short answer is one?
    Mr. Scott. Wages.
    Mr. Akin. Wages are going to go down. Two, unemployment is 
going to go up.
    Mr. Scott. Jobs are going to be pushed out.
    Dr. Morrison. About a quarter of our growth over the last 
decade or so has been contingent on international trade. If we 
do not manage to keep up the pace, we are going to see slowing 
growth.
    Mr. Akin. Hurt the economy?
    Dr. Morrison. Hurt the economy. You bet.
    Mr. Lavin. It is our best path to continue prosperity, to 
help our companies compete successfully internationally, and it 
moves our companies up to that global level of excellence, and 
it helps our kids become more internationally aware and 
competitive as well.
    So whether the economy in the 21st Century is going to be 
international, we want to make sure that our companies are 
winners, that the jobs are there, that the products are the 
best, and that we can compete anyplace in the world.
    Mr. Akin. So we are talking about prosperity and jobs.
    Mr. Lavin. Absolutely.
    Dr. Yager. I think I would call it standard of living. I 
think the fact that we have exporters here that are not able to 
sell their products in the world marketplace could have an 
effect on our standard of living because to the extent that we 
have products that others would be willing to buy and pay 
prices for, but we're not able to get those out there, our 
standard of living is lower than it would be under that 
situation.
    And of course, I think we also would agree that there is a 
more macroeconomics thread in terms of the balance of trade. 
The deficit cannot go on forever, and I think one of the 
questions is: how will it come around? Will it be a soft 
landing or will it be more of a shock to the U.S.?
    Mr. Akin. Well, I think you have gotten the attention of 
the average guy on the street if you talk about those things, 
and I appreciate you all taking time to join us, and I also 
thank the other members for their questions and all, and I hope 
you all have a great day.
    The hearing is adjourned.
    [Whereupon, at 4:14 p.m., the Committee was adjourned.]

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